Balance and effectiveness of research and innovation spending Contents



1.In November 2017 the Government published its Industrial Strategy, Building a Britain fit for the future.1 The strategy identified five foundations of productivity for the UK, namely ideas, people, infrastructure, business environment and places. The first policy commitment made in the strategy, under the heading of “ideas”, was to raise total research and development investment to 2.4% of GDP by 2027, and to reach 3% of GDP in the longer term, “placing us in the top quartile of OECD countries”.2

2.At the same time, in response to Sir Paul Nurse’s Review of research councils in 2015,3 the Higher Education and Research Act 2017 formally established UK Research and Innovation (UKRI) in April 2018. UKRI brought together seven research councils,4 Innovate UK, and the research elements of the Higher Education Funding Council for England—now called ‘Research England’.

3.UKRI published its initial Strategic Prospectus in May 2018, representing the “beginning of the process to develop a detailed Research and Innovation Strategy”.5 Regarding the 2.4% target for R&D spending, UKRI stated that it “will work with Government to develop a plan for meeting this target, maximising the impact of public investment in research and innovation, and supporting businesses and other partners to invest more”.6

4.The Higher Education and Research Act 2017 stated that the role of UKRI included advising Ministers regarding the balance between the dual support funding streams.7 UKRI envisaged ongoing work to analyse and understand what constituted a reasonable balance.8

Our inquiry

5.In July 2018 we launched an inquiry to look at the balance and effectiveness of research and innovation spending, to identify and understand the levers and choices available to aid the Government and UKRI in reaching the Government’s 2.4% target. In the call for evidence we highlighted the need to understand the rationale required for deciding the balance of public R&D funding against many different criteria, including:

6.We also wished to assess the effectiveness of this public spending, in light of new funding streams such as the Industrial Strategy Challenge Fund. With the next Spending Review then expected in 2019 we asked for information regarding the phasing and plans required to meet the Government’s targets, and assumptions about the private sector investment that would be necessary alongside Government spending. As such we were also interested in the effectiveness of different levers for encouraging innovation, including R&D tax credits, the Small Business Research Initiative, and other loans and grants available for private enterprise.

7.Given the scope of inquiry and the number of actors involved across Government, universities and business—and the linkages between them—we received a high number of written evidence submissions (around 100). We also took oral evidence from 29 witnesses including the then Minister for Universities, Science, Research and Innovation and the Chief Executive of UKRI, as well as academics, international experts on research and development, and representatives of universities, business, and charities. To assist us in our work, we also appointed Dr Kieron Flanagan, Senior Lecturer in Science and Technology Policy at Manchester Institute of Innovation Research, as a Specialist Adviser for our inquiry.10 We are grateful to everyone who contributed to our inquiry.

8.In this Report we set out recommendations for the Government and UKRI that we believe will be important in ensuring the 2.4% and 3% targets for R&D as a proportion of GDP are met. Specifically:

1 BEIS, Industrial Strategy, November 2017

2 BEIS, Industrial Strategy, November 2017, p 66

3 BEIS, Ensuring a successful research endeavour: review of the UK research councils by Paul Nurse, November 2015; the review contained many recommendations that would be incorporated in to both the Industrial Strategy and UKRI, including the creation of a single organisation (UKRI) to improve communication and engagement between the research community and policy makers and establish common ways of working, a Ministerial committee for strategic discussions, a common research fund and increased ability for Government to invest in particular sectors, disciplines or regions. The report also recommended that dual support system of funding be preserved and that a principle of “investing in excellence, wherever it is found” be maintained.

4 Arts and Humanities Research Council; Biotechnology and Biological Sciences Research Council; Engineering and Physical Sciences Research Council; Economic and Social Research Council; Medical Research Council; Natural Environment Research Council; and Science and Technology Facilities Council.

5 UKRI, Strategic Prospectus, May 2018, p6

6 UKRI, Strategic Prospectus, May 2018, p11

7 Under the ‘dual support’ system, Research England will provide annual funding for English institutions in the form of a ‘block grant’, and UK Research Councils provide funding for specific research projects and programmes. See Chapter 5 for further details.

8 UKRI, Strategic Prospectus, May 2018, p23

9 The terms of reference considered directed funding for the Industrial Strategy

10 Dr Flanagan declared his interests on 13 November 2018: Senior Lecturer in Science and Technology Policy, Manchester Institute of Innovation Research, University of Manchester: an employee of the University of Manchester and an elected member of that university’s Senate

Published: 12 September 2019